Crop Insurance Expanded in Senate Farm Bill

On June 10, the US Senate voted 66 to 27 to approve the 2013 Farm Bill, an expensive piece of legislation that will guide the agricultural and food policies of the US for the next five years. The Farm Bill, which will cost taxpayers around $955 billion over 10 years makes several changes to current policy expanding some subsidies to agriculture which addressing the rapid growth of the food stamp program known as the Supplemental Nutrition Assistance Program or SNAP. The House of Representatives will consider the Senate’s Farm Bill in the next few weeks.

While the bulk of the near trillion dollar bill is devoted to food stamps, another area that is projected to cost around $89 billion is the nation’s crop insurance program. Farmers buy crop insurance for protection against the financial impact of natural disasters affecting their crops and the loss of revenue caused by declines in agricultural commodity prices. The federal government currently dominates the crop insurance market. It sets most prices, pays more than 60 percent of farmers’ premiums, and decides what the program covers.

The crop insurance program heavily subsidizes the risk of farmers across the county. Currently, the federal government chips around $7 billion per year to help farmers cover the crop insurance premiums. Under the Senate farm bill, the government would expand this subsidy with an additional $5 billion per year to cover the deductibles that farm owners pay before their insurance kicks in. The losses the program would compensate for need not be from floods, droughts, frosts, or other weather-related catastrophes, but would instead largely be driven by market fluctuations in the prices of commodities.

In an interview with National Public Radio, Bruce Babcock, a professor of economics at Iowa State University and a supporter of crop insurance criticized the amount of taxpayer dollars that go into the crop insurance program: for every dollar of insurance premium, on average, farmers pay 38 cents while taxpayers kick in 62 cents.

Several amendments were proposed in the Senate to limit the program but were not passed or even debated on the floor, including an amendment to limit crop insurance subsidies to $50,000 for any one farmer and a proposal to reduce the current cap of government funding for crop insurance companies from $1.3 billion to $900 million per year.

The expansion of the crop insurance program was one of the most highly debated parts of the farm bill. Supporters of federal government crop insurance, including crop insurance agents and agricultural trade groups, have argued that subsidizing crop insurance is an efficient and fair way to protect farmers from disaster and allow them to rebuild—more efficient and fair than private insurance or ad hoc government aid. They contend crop insurance is an important safety net for farmers, who are vulnerable to extreme weather events that can destroy their entire product at once.

Opponents of government crop insurance, however, say the current federal program has become excessively expensive, complex, overreaching, and inefficient. Those supporting reform or cancellation of federal crop insurance contend the defects of the current system have been exacerbated by stakeholders taking advantage of it, exploiting what was once a good program. These critics like the Taxpayers for Common Sense argue that because the cost of crop insurance is tied to the price of near-record high priced commodities, the program is quickly becoming too expensive for taxpayers to bear and the government should reevaluate the risk they are willing to cover. The proposed expansion only exacerbates these problems.

Another criticism voiced during the Senate’s negotiations is the fact that a large portion of the crop insurance subsidies are provided to the largest 4 percent of farm operators. The Senate responded to this disparity by adding a provision that would shrink subsidies for farmers earning more than $750,000 per year.

Experts expect many of the issues raised by critics to reemerge during debate in the House. Scott Faber, vice president of government affairs at the Environmental Working Group argued in an AgriPulse Communications article that only with significant modifications will the Farm Bill make it out of the House of Representatives. “I have faith in the House to write a better bill on the floor.” “It’s hard to imagine this bill, with its Soviet-style price guarantees, would get 218 votes. The path to a farm bill includes many of these reforms.”

Matthew Glans is a Senior Policy Analyst at The Heartland Institute. Glans joined the staff of The Heartland Institute in November 2007 as Heartland’s Legislative Specialist on Insurance and Finance. Glans’ responsibilities include interacting with elected officials and staff on insurance and finance issues; tracking new legislation; and drafting responses to emerging issues via talking points, news releases, and op-ed pieces, with the goal of educating legislators and informing them about free-market ideas.
Glans earned a Master’s degree in political studies from the University of Illinois at Springfield. He also graduated from Bradley University with a Bachelor of Arts degree majoring in political science. Before coming to Heartland, Glans worked for the Illinois Department of Healthcare and Family Services in its legislative affairs office in Springfield. Glans also worked as a Congressional Intern in U.S. Representative Henry Hyde’s Washington D.C. office in 2004.